U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File Number 1-13984
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
(Exact name of small business issuer as specified in its charger)
New York 13-3832215
-------- ----------
(State of other jurisdiction (I.R.S. Employer
of incorporation) Identification No.)
533 W. 47th Street
New York, NY 10036
(Address of principal executive offices)
(212) 586-7600
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
----- -----
State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date: As of August 12, 1996, there were
2,560,000 shares of common stock, par value $.001 per share, outstanding.
<PAGE>
WILLIAM GREENBERG JR. DESSERT AND CAFES, INC.
SECOND QUARTER REPORT ON FORM 10Q-QSB
TABLE OF CONTENTS
-----------------
Page No.
--------
PART I. FINANCIAL INFORMATION
- ------- ---------------------
Item 1. Financial Statements . . . . . . . . . 3
Item 2. Management's Discussion and Analysis . 10
2 of 17
<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
BALANCE SHEETS
(Unaudited)
A S S E T S
-----------
June 30, December 31,
1996 1995
---------- ------------
Current assets:
Cash and cash equivalents $ 555,130 $2,169,999
Accounts receivable, net of allowance
for doubtful accounts of $18,500 146,686 222,623
Inventory 138,250 91,631
Prepaid expenses and other current assets 68,474 100,532
---------- ----------
Total current assets 908,540 2,584,785
---------- ----------
Property and equipment, at cost, less
accumulated depreciation and amortization
of $81,620 and $37,702, respectively 1,813,668 1,477,062
---------- ----------
Other assets:
Deferred charges 150,000 -
Covenant not to compete 100,000 112,500
Goodwill 871,920 903,060
Security deposits 113,872 77,772
---------- ----------
Total other assets 1,235,792 1,093,332
---------- ----------
$3,958,000 $5,155,179
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable $ 265,971 $ 387,630
Accrued expenses and other current liabilities 105,841 64,240
---------- ----------
Total current liabilities 371,812 451,870
---------- ----------
Deferred rent 39,762 23,207
---------- ----------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock - $.001 par value
Authorized - 2,000,000 shares
Issued - none
Common stock - $.001 par value
Authorized - 10,000,000 shares
Issued and outstanding - 2,560,000 shares 2,560 2,560
Additional paid-in capital 6,597,342 6,597,342
Accumulated deficit ( 3,053,476) ( 1,919,800)
---------- ----------
Total stockholders' equity 3,546,426 4,680,102
---------- ----------
$3,958,000 $5,155,179
========== ==========
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<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
---------------------- --------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $1,772,566 $ - $ 946,776 $ -
---------- ---------- ---------- ----------
Cost and expenses:
Cost of sales 1,278,327 - 672,693 -
Selling and administrative
expenses 1,664,339 41,533 864,000 21,920
---------- ---------- ---------- ----------
Total cost and expenses 2,942,666 41,533 1,536,693 21,920
---------- ---------- ---------- ----------
Loss from operations ( 1,170,100) ( 41,533) ( 589,917) ( 21,920)
Other income:
Interest income 36,424 - 7,340 -
---------- ---------- ---------- ----------
Net loss ( 1,133,676) ( 41,533) ( 582,577) ( 21,920)
Accumulated deficit at
beginning of period ( 1,919,800) ( 58,579) ( 2,470,899) ( 78,192)
---------- ---------- ---------- ----------
Accumulated deficit at
end of period ($3,053,476) ($ 100,112) ($3,053,476) ($ 100,112)
========== ========== ========== ==========
Net loss per common share ($.42) ($.03) ($.22) ($.01)
==== ==== ==== ====
Weighted average number of
common shares outstanding 2,723,404 1,563,830 2,723,404 1,563,830
========= ========= ========= =========
</TABLE>
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<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six
Months Ended
June 30,
-----------------
1996 1995
---------- ----------
Cash flows from operating activities:
Net loss ($1,133,676) ($ 41,533)
---------- --------
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 87,558 -
Deferred rent 16,555 -
Increase (decrease) in cash flows as
a result of changes in asset and
liability account balances:
Accounts receivable 75,937 -
Inventory ( 46,619) -
Prepaid expenses and other current assets 32,058 -
Security deposits ( 36,100) -
Deferred charges ( 150,000)
Accounts payable ( 121,659) -
Accrued expenses and other current liabilities 41,601 26,000
---------- --------
Total adjustments ( 100,669) 26,000
---------- --------
Net cash used in operating activities ( 1,234,345) ( 15,533)
---------- --------
Cash flows from investing activities:
Proceeds from sale of common stock - 600,000
Capital expenditures ( 380,524) ( 33,400)
Deposit on purchase of Greenberg's
Desserts Associates, L.P. - ( 76,000)
---------- --------
Net cash provided by (used in) investing activities ( 380,524) 490,600
---------- --------
Cash flows from financing activities:
Payment of deferred finance costs - ( 24,200)
Increase in amounts due to officer/stockholder - 54,933
---------- --------
Net cash provided by financing activities - 30,733
---------- --------
Net increase (decrease) in cash and cash equivalents ( 1,614,869) 505,800
Cash and cash equivalents at beginning of period 2,169,999 -
---------- --------
Cash and cash equivalents at end of period $ 555,130 $505,800
========== ========
Supplemental Information:
Cash payments for the period:
Interest expense $ - $ -
========== =======
Income taxes $ 10,079 $ -
========== =======
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<PAGE>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SIX AND THREE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
NOTE 1 - PREPARATION OF UNAUDITED FINANCIAL STATEMENTS.
William Greenberg Jr. Desserts and Cafes, Inc. (the "Company")
was incorporated in the State of New York on November 12, 1993 as CIP,
Inc. On August 23, 1994, its name was changed to Desserts and Cafes,
Inc., and in August 1995 its name was changed to William Greenberg Jr.
Desserts and Cafes, Inc. Since its inception through July 10, 1995,
the Company was a development stage company and did not generate any
revenues and did not carry on any significant operations.
Management's efforts were directed toward the development and
implementation of a plan to generate sufficient revenues in the bakery
industry to cover all of its present and future costs and expenses.
On July 10, 1995, the Company acquired the net operating assets of
Greenberg Dessert Associates Limited Partnership ("Greenberg's-L.P.")
at which time the Company commenced operations and ceased being a
development stage enterprise. The deficit accumulated during the
development stage aggregated $100,112.
In the opinion of the Company, the accompanying unaudited
condensed financial statements contain all adjustments (consisting of
only normal recurring accruals) necessary to present fairly the
financial position as of June 30, 1996 and the results of operations
for the six and three month periods ended June 30, 1996 and 1995 and
of cash flows for the six months ended June 30, 1996 and 1995. The
results of operations for the six months ended June 30, 1996 are not
necessarily indicative of results that may be expected for any other
interim period or for the full year.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31,
1995 appearing in the Company's Annual Report on Form
10-KSB for the year then ended.
6 of 17
<PAGE>
NOTE 2 - ACQUISITION OF GREENBERG DESSERT ASSOCIATES LIMITED PARTNERSHIP.
On June 2, 1995, the Company entered into an agreement to
purchase the operating assets (net of $155,700 in assumed liabil-
ities), properties and rights of Greenberg's-L.P. for $2,000,000,
consisting of $1,967,300 in cash and a promissory note in the amount
of $32,700 (the "Acquisition"). The Acquisition, which was consum-
mated on July 10, 1995, was accounted for as a purchase. The excess
of the purchase price over the value of the net assets acquired was
recorded as goodwill. In addition, the Company incurred legal fees of
$26,000, which related to the Acquisition.
Assuming the operating assets of Greenberg's-L.P. had been
acquired at January 1, 1995, the results of operations on a proforma
basis for the six and three months ended June 30, 1995 would have been
as follows:
For the Six For the Three
Months Ended Months Ended
June 30, 1995 June 30, 1995
------------- -------------
Net sales $1,426,824 $741,252
---------- --------
Cost of sales 896,078 455,967
Selling, general and
administrative expenses 862,416 344,465
Depreciation and
amortization expenses 84,667 71,598
---------- --------
1,843,161 872,030
---------- --------
Loss from operations ( 416,337) ( 130,778)
Interest expense ( 145,000) ( 140,930)
---------- --------
Net loss ($ 561,337) ($271,708)
========== ========
NOTE 3 - PROPERTY AND EQUIPMENT.
Property and equipment at June 30, 1996 consist of:
Furniture and fixtures $ 105,550
Equipment 605,580
Leasehold improvements 1,109,681
Construction in progress 74,477
----------
1,895,288
Less: Accumulated depreciation
and amortization 81,620
----------
$1,813,668
==========
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<PAGE>
NOTE 4 - SEGMENT INFORMATION.
The Company's operations are classified into two segments,
retail and wholesale. The following is a summary of segmented in-
formation as of June 30, 1996 and for the six and three month periods
ended June 30, 1996 (actual) and 1995 (on a proforma basis which
reflects the purchase of the business of Greenberg's-L.P. as if it had
occurred on January 1, 1995):
For the Six For the Three
Months Ended Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
---------- ---------- -------- --------
(Actual) (Proforma) (Actual) (Proforma)
Operating data:
Net sales:
Retail $1,219,425 $1,006,902 $644,459 $508,121
Wholesale 553,141 419,922 302,317 233,131
---------- ---------- -------- --------
Total operating data 1,772,566 1,426,824 946,776 741,252
---------- ---------- -------- --------
Loss from operations:
Retail ( 702,791) ( 335,640) ( 328,992) ( 119,791)
Wholesale ( 467,309) ( 80,697) ( 260,925) ( 10,987)
---------- ---------- -------- --------
Total loss from operations ( 1,170,100) ( 416,337) ( 589,917) ( 130,778)
---------- ---------- -------- --------
Less: General corporate
income (expense) 36,424 ( 145,000) 7,340 ( 140,930)
---------- ---------- -------- --------
Net loss ($1,133,676) ($ 561,337) ($582,577) ($271,708)
========== ========== ======== ========
Balance sheet data:
As of
June 30,
1996
----------
Identifiable assets:
Retail $1,185,194
Wholesale 1,184,333
----------
2,369,527
General corporate assets 1,588,473
----------
Total assets $3,958,000
==========
8 of 17
<PAGE>
NOTE 5 - STOCKHOLDERS' EQUITY.
(a) Per Share Data:
Net loss per share for the six and three months ended June 30,
1996 was computed by the weighted average number of shares outstanding
during the period and the assumed conversion of a warrant issued in
connection with the financing for the Acquisition into 163,404 shares
of common stock.
Net loss per share for the six and three months ended June 30,
1995 was computed by the weighted average number of shares outstanding
during the period.
(b) Stock Options:
On January 13, 1996, stock options to purchase up to 20,000
shares of the Company's common stock were issued to a consultant,
subject to stockholder approval, and are exercisable at $5.50 per
share for a two year period as follows:
(i) Options to purchase 5,000 shares of the Company's common stock
are immediately exercisable.
(ii) Options to purchase the additional 15,000 shares of the
Company's common stock are exercisable in increments of 5,000
shares at such time as the closing price of the Company's
common stock as reported by Nasdaq is $7.50, $9.00 and $10.50
per share, respectively.
(c) Common Stock:
In March 1996, the Company's former Chairman Willa Rose
Abramson pledged 400,000 common shares of the Company to a third party
as collateral for a loan made to her spouse. The loan matures in
March 1997. Effective April 15, 1996, Ms. Abramson resigned as a
member of the Board of Directors and from the offices of Chairman of
the Board, Chief Financial Officer and Secretary and pursuant to the
terms of an agreement between the Company and Ms. Abramson, the
Company has agreed to continue to pay Ms. Abramson her salary and
benefits at their current levels for a period of up to 16 months.
NOTE 6 - CONSULTING AGREEMENT.
On January 13, 1996, the Company entered into a consulting
agreement with an unrelated party to provide financial public rela-
tions services for a period of two years at a monthly fee of $2,500
and, subject to stockholder approval, an option to purchase 20,000
shares of the Company's common stock (see Note 5). The agreement may
be terminated by either party thereto upon thirty days notice prior to
the expiration of the first six months of the agreement.
9 of 17
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATIONS
(a) General:
The Company was incorporated in November 1993 and was in the
development stage through July 1995. From April 1994 through June
1995, the Company assembled its core management, raised approximately
$600,000 from equity financing, and negotiated a definitive agreement
to purchase the operating assets and business of Greenberg's-L.P. In
July 1995, the Company completed the Acquisition for a purchase price
of $1,967,300 in cash and a promissory note for $32,700. In connec-
tion with the Acquisition, the Company obtained a $2,000,000 term loan
and applied a portion of the net proceeds from its initial public
offering, consummated in October 1995, to pay in full the principal
and accrued interest under the term loan. The Acquisition was
accounted for as a purchase and the excess of the purchase price over
the value of the net assets acquired was recorded as goodwill.
Additionally, to the extent the Company may have taxable income
in future periods, there is available a net operating loss for federal
income tax purposes of approximately $1,950,000 which can be used to
reduce the tax on income up to that amount through the year 2010.
(b) Results of Operations:
Historical:
The Company from its inception on November 12, 1993 through
July 10, 1995 was in the development stage and did not carry on any
significant operations nor generate any revenues. Management's
efforts were directed toward the development and implementation of a
plan to generate sufficient revenues in the baking industry to cover
all of its costs and expenses. During the six and three months ended
June 30, 1995, the Company incurred costs and expenses of $22,000 and
$20,000, respectively, in implementing its plan. $17,500 of these
costs were paid to a consultant who became the Company's President in
July 1995. The Company did not generate any revenues until July 10,
1995 when it acquired the net operating assets of Greenberg's-L.P. The
Company's revenues aggregated $1,773,000 and $947,000 for the six and
three months ended June 30, 1996, respectively. Management believes
that its revenues during the three period ended March 31, 1996 were
adversely affected by the severe winter storms which affected the New
York City area during the period. The cost of goods sold were
$1,278,000 and $673,000 during the six and three month periods and
selling, general and administrative expenses were $1,664,000 and
$864,000 (93.9% and 91.3% of sales), respectively.
For the six and three months ended June 30, 1996, the Company
had interest income of $36,000 and $7,000, respectively, which arose
from investing a portion of the net proceeds it received upon the
consummation of the initial public offering in highly liquid cash
equivalents.
As a result, the net loss for the six and three months ended
June 30, 1996 was $1,134,000 and $583,000, respectively.
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<PAGE>
(b) Results of Operations: (Continued)
Historical: (Continued)
Insofar as the Company had no revenues prior to the Acquisition
in July 1995, management is of the opinion that a discussion of the
results of operations of the Company (and Greenberg's-L.P.) on a
historical versus a proforma basis would be more informative than a
comparative discussion of the Company on a historical basis. Therefore,
management's discussion of the Company's results of operations for the
six and three months ended June 30, 1996 as compared with the six and
three months ended June 30, 1995 are based on the historical and
proforma segmental information found below and the proforma
presentation reflects the purchase of Greenberg's-L.P. as if it had
occurred on Januray 1, 1995.
(c) Proforma:
Retail Segment:
The retail segment presently consists of five retail stores
located in Manhattan, New York including its cafe located in Macy's
Herald Square. All baking is done at the Company's bakery which is
located on West 47th Street, New York, New York. From this location,
baked goods are supplied to retail stores as well as to wholesale
customers.
The results of the retail segment for the six and three months
ended June 30, 1995 is presented on a proforma basis and reflects the
Acquisition as if it has occurred on January 1, 1995.
<TABLE><CAPTION>
For the Six Months Ended Percentage
June 30, Change (as
---------------------------------------------------
1996 % 1995 % Change a % of Sales)
---------- ------ ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $1,219,000 100.0% $1,007,000 100.0% $212,000 - %
Cost of sales 801,000 65.7 600,000 59.6 201,000 6.1
---------- ----- ---------- ----- -------- ----
Gross profit 418,000 34.3 407,000 40.4 11,000 ( 6.1)
Selling, general and
administrative 1,059,000 86.9 683,000 67.8 376,000 19.1
Depreciation and
amortization 62,000 5.1 60,000 6.0 2,000 ( .9)
---------- ----- ---------- ----- -------- ----
Loss from operations ($ 703,000) ( 57.7%) ($ 336,000) ( 33.4%) ($367,000) (24.3%)
========== ====== ========== ====== ======== =====
<CAPTION>
For the Three Months Ended Percentage
June 30, Change (as
---------------------------------------------------
1996 % 1995 % Change a % of Sales)
---------- ------ ---------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $644,000 100.0% $508,000 100.0% $136,000 - %
Cost of sales 420,000 65.2 304,000 59.8 116,000 5.4
---------- ----- ---------- ----- -------- ----
Gross profit 224,000 34.8 204,000 40.2 20,000 ( 5.4)
Selling, general and
administrative 521,000 80.9 270,000 53.1 251,000 27.8
Depreciation and
amortization 32,000 5.0 55,000 10.8 ( 23,000) ( 5.8)
---------- ----- ---------- ----- -------- ----
Loss from operations ($ 329,000) ( 51.1%) ($ 121,000) ( 23.7%) ($208,000) (27.4%)
========== ====== ========== ====== ======== =====
</TABLE>
The 21.1% and 26.8% increases in net sales for the six and
three month periods ended June 30, 1996, respectively, as compared to
the same periods in 1995 was primarily due to the opening of a cafe at
Macy's Herald Square in November 1995 and a general increase in same
store sales. Management believes that its net sales for the six months
ended June 30, 1996 were adversely affected by the severe winter
storms which affected the New York City area during the period.
11 of 17
<PAGE>
(c) Proforma: (Continued)
Retail Segment: (Continued)
The increase in cost of sales as a percentage of sales for the
six and three months ended June 30, 1996 as compared to the same
periods in 1995 is attributable to (i) an increase in baking personnel
and labor rates, (ii) increased costs in the development of new baked
products, and (iii) increases in the cost of ingredients and packaging
materials. The Company was unable to pass most of these increased
costs on to its customers.
The retail and wholesale divisions sell similar products which
are baked at the Company's centralized baking facility. Costs are
allocated to each division based upon the standard costs of the items
sold. Such costs consist of ingredients, direct labor and overhead.
Prior to the Acquisition, the wholesale division was considered an
outgrowth of the retail business and was therefore not considered a
separate business segment. Subsequent to the Acquisition, management
has concentrated their efforts on running the wholesale segment as a
separate and distinct business.
Selling, general and administrative expenses of the retail
segment consist of (i) expenses incurred in each of the five retail
stores and (ii) expenses allocated from the Company's centralized
operating facility which are based primarily on sales volume. Selling,
general and administrative expenses of the retail segment for the six
and three months ended June 30, 1996 increased by $376,000 (55.1%) and
$251,000 (93.0%), respectively, over the same periods in 1995. The
increase in selling, general and administrative expenses during the six
and three months ended June 30, 1996 as compared to the same periods in
1995 was primarily the result of (i) salaries paid to sales personnel
in its Cafe in Macy's Herald Square, (ii) the allocation to the retail
segment of salaries of additional management and administrative
personnel, and (iii) increased compensation paid to prior management
personnel pursuant to consulting agreements entered into by the Company
upon consummation of the Acquisition in July 1995.
The increase in depreciation and amortization for the six and
three months 1996 as compared with the same periods in 1995 is attri-
butable to depreciation on the Macy's Herald Square Cafe as well as on
the write up of the assets purchased from Greenberg's-L.P. to
appraised values and amortization of goodwill during 1995.
The increase in the net loss for the six and three months of
1996 as compared with the same periods in 1995 is primarily attributed
to the increases in the cost of products sold and additional
compensation paid to officers and managerial personnel under their
respective employment and consulting agreements entered into after the
first six months of 1995.
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<PAGE>
(d) Wholesale Segment:
The results of the wholesale segment for the six and three
months ended June 30, 1995 is presented on a proforma basis and
reflects the Acquisition as if it had occurred on January 1, 1995:
<TABLE><CAPTION>
For the Six Months Ended Percentage
June 30, Change (as
-----------------------------------
1996 % 1995 % Change a % of Sales)
-------- ------ -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $553,000 100.0% $420,000 100.0% $133,000 - %
Cost of sales 451,000 81.6 296,000 70.5 155,000 11.1
-------- ----- -------- ----- -------- ----
Gross profit 102,000 18.4 124,000 29.5 ( 22,000) (11.1)
Selling, general and
administrative 543,000 98.2 180,000 42.9 363,000 55.3
Depreciation and
amortization 26,000 4.6 25,000 5.9 1,000 ( 1.3)
-------- ----- -------- ----- -------- ----
Loss from operations ($467,000) ( 84.4%) ($ 81,000) ( 19.3%) ($386,000) (65.1%)
======== ====== ======== ====== ======== =====
<CAPTION>
For the Three Months Ended Percentage
June 30, Change (as
-----------------------------------
1996 % 1995 % Change a % of Sales)
-------- ------ -------- ------ -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $302,000 100.0% $233,000 100.0% $ 69,000 - %
Cost of sales 240,000 79.5 152,000 65.2 88,000 14.3
-------- ----- -------- ----- -------- ----
Gross profit 62,000 20.5 81,000 34.8 ( 19,000) (14.3)
Selling, general and
administrative 310,000 102.6 72,000 30.9 238,000 71.7
Depreciation and
amortization 13,000 4.3 20,000 8.6 (7,000) ( 4.3)
-------- ----- -------- ----- -------- ----
Loss from operations ($261,000) ( 86.4%) ($ 11,000) ( 4.7%) ($250,000) (81.7%)
======== ====== ======== ====== ======== =====
</TABLE>
The Company, through its institutional/wholesale segment,
distributes pastries, cakes, pies and other desserts to hotels,
country clubs, gourmet markets, restaurants, food shops and corporate
dining facilities. All products are baked at the Company's baking
facility located in N.Y.C.
The 31.7% and 29.6% increases in the wholesale segment's net
sales for the six and three months ended June 30, 1996 as compared to
the same periods in 1995 are attributable to the increase in shipments
to two nationwide restaurant chains.
Cost of sales as a percentage of sales increased by 11.1% and
14.3% during the six and three months ended June 30, 1996,
respectively, as compared to the same periods in 1995. Such increase
was attributable to increases in both baking personnel and wage rates,
an increase in the cost of developing new baked products, and increases
in the cost of ingredients and packaging materials. Most of these cost
increases could not be passed on to the Company's customers.
Selling, general and administrative expenses of the wholesale
segment for the six and three months ended June 30, 1996 increased by
$363,000 (201.7%) and $238,000 (330.6%), respectively, over the same
periods in 1995. Such increases were primarily the result of an
allocation to the wholesale segment of the salaries of additional
management and administrative personnel, as well as increased
compensation paid to prior management personnel. The additional
management personnel and the additional compensation paid to personnel
were the result of the various employment and consulting agreements
entered into by the Company after the first quarter of 1995.
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<PAGE>
(d) Wholesale Segment: (Continued)
The increase in depreciation and amortization for the six and
three months of 1996 as compared with the same periods in 1995 is
attributable to depreciation on newly acquired property asset
additions and the write up of property assets purchased from
Greenberg's-L.P. to appraised values and amortization of goodwill in
connection with the Acquisition.
The increase in the net loss for the six and three months of
1996 as compared with the same periods in 1995 is primarily attributed
to lower margins caused by increases in ingredients, baking salaries
and new products coupled with additional compensation paid to officers
and managerial personnel under their respective employment and
consulting agreements entered into by the Company in connection with
the Acquisition of the business of Greenberg's-L.P. and the Company's
initial public offering.
(e) Plan of Operations:
In connection with the Acquisition, the Company in July 1995
implemented a business strategy designed to increase the retail,
institutional/wholesale and mail order operations of its business.
The Company's growth strategy is comprised of the following:
(1) Retail:
The Company intends to open additional retail facilities in the
North and Southeastern United States. These cafes and kiosks
will offer a broad selection of what the Company believes are
premium quality baked goods and desserts as well as sandwiches,
soups and salads, espresso, cappuccino and specialty coffees
and teas. Since July 1995, the Company opened its first cafe
at Macy's Herald Square in November 1995 and on May 1, 1996
opened its second cafe on Broadway and 8th Street in New York
City.
The Company has reached a tentative agreement with
Macy's East, a division of Federated Department Stores, Inc.,
concerning the placement of an aggregate of seven carts and
kiosks in Macy's stores in New York and New Jersey. The Company
anticipates that the cart and kiosk locations will be finalized
in August 1996 and installation will occur in September and
October 1996. The installation of these carts and kiosks
in Macy's stores is subject to a number of conditions and
approvals, including the final approval of R.H. Macy's Inc.
(2) Institutional/Wholesale:
The Company plans to increase its penetration in the institu-
tional/wholesale food market by increasing its marketing
efforts to restaurants, hotels and corporate dining facilities
and by offering its products to supermarkets in New Jersey, New
York, Florida and other states and offering its products
through specialty food retailers and mail order catalogue
businesses.
(3) Mail Order:
The Company is expanding its current mail order business by
offering additional catalogues and scheduling special mailings
to existing and prospective customers for specific occasions.
14 of 17
<PAGE>
(e) Plan of Operations: (Continued)
(4) Kosher Foods:
The Company is also seeking to capitalize on the growth of the
kosher food industry. The Company has a kosher certification and
believes it can capitalize on the projected growth of this market.
The Company estimates that new construction start-up costs for
its cafes will range from approximately $150,000 to $175,000 for a
small cafe (600-800 square feet) and approximately $200,000 to
$350,000 for a full size cafe (800-1,200 square feet) and estimates
that the cost of converting existing restaurant space into a cafe will
be approximately $75,000. In addition, the Company estimates the
start-up costs for a kiosk to be between approximately $50,000 to
$65,000.
The Company believes that the cost of funding new cafes and
kiosks will increase the Company's operating costs and expenses
primarily due to increased personnel and other corporate operating
costs required to operate the new cafes and kiosks. Each cafe and/or
kiosk will incur the pre-operating expenses, such as advertising and
promotional costs, in order to encourage new and repetitive consumer
traffic. Until consumer traffic at each location is sufficient to
generate revenues to cover each location's cost and a portion of the
overall corporate overhead, the Company believes that the initial
opening of each new location will have a positive effect on net
revenues but each new location will have an initial adverse effect on
earnings.
For the six months ended June 30, 1996, the Company
incurred an aggregate of approximately $381,000 in capital expendi-
tures of which $128,000 relates to its cafe at Eighth Street and
Broadway which opened on May 1, 1996 and its proposed cafe at 6th
Avenue and 10th Street, $54,000 was used on its four kiosks which
were completed during April 1996 and $65,000 was used for computer
hardware and software.
(f) Liquidity and Capital Resources:
At June 30, 1996, the Company had working capital of approxi-
mately $537,000 as compared to working capital of $2,133,000 at
December 31, 1995, a decrease of $1,596,000. During the six months
ended June 30, 1996, working capital was used by the Company for the
acquisition of $381,000 in property assets and to fund the operating
loss incurred during the first six months of 1996. Since its
inception, the Company's primarily source of working capital has been
the proceeds received from the issuance of its common stock and notes.
In June 1995, the Company issued 180,000 shares of common stock
to unrelated parties for $600,000 and in August 1995, the Company
issued 60,000 shares of its common stock to unrelated parties for
$200,000. In connection with the Acquisition of Greenberg's-L.P., the
Company received $2,000,000 from the sale of two notes to InterEquity
Capital Partners, L.P. ("InterEquity"). During October 1995, the
Company received net proceeds of $4,919,586 from the sale of 1,150,000
shares of its common stock in an initial offering to the public. Of
the net proceeds received from the initial public offering, $2,125,000
was used to repay the InterEquity debt including interest. In
addition to the repayment of the InterEquity debt, the Company intends
to use the net proceeds to fund its planned expansion strategy and for
general corporate purposes, including working capital.
15 of 17
<PAGE>
(f) Liquidity and Capital Resources: (Continued)
In October 1995, InterEquity converted a $1,000 convertible note
into a six-year warrant to purchase 6% of the Company's issued and
outstanding capital stock on a fully diluted basis at the time of
exercise. Pursuant to the warrant, the Company granted InterEquity an
option to put those shares acquired by InterEquity upon exercise of
the warrant to the Company at any time during the period from July 10,
2000 through July 31, 2005 if the shares of common stock have not been
listed or admitted to trade on a national securities exchange and/or
are not quoted on an automated quotation system at the time at a
price equal to a multiple of earnings as defined in the loan agreement
between the parties or a price established by independent appraisal.
Pursuant to the terms of the loan agreement, the Company has also
granted InterEquity unlimited "piggyback" registration rights upon
exercise of the warrant.
In connection with the Company's initial public offering, the
Company and its directors, officers and principal share-holders agreed
with the managing underwriter of its initial public offering (the
"Representative") not to, directly or indirectly, register, issue,
offer, sell, offer to sell, contract to sell, hypothecate, pledge or
otherwise dispose of any shares of common stock, or any securities
convertible into or exercisable or exchangeable for shares of common
stock, for a period of one year from October 12, 1995, without the
prior written consent of the Representative.
The Company's management believes that the proceeds from its
initial public offering together with the projected cash flows from
operations, if any, will be sufficient to fund operations, including
its planned expansion, for at least the next five months. However,
there can be no assurance that the Company will not be required to
raise additional capital for its growth strategy prior to such date.
The Company is currently discussing certain business transactions,
including financing transactions with third parties, to increase its
working capital and strengthen its financial condition. Although the
Company has previously been successful in obtaining sufficient cash
and capital funds through issuances of common stock and promissory
notes, there can be no assurance that the Company will be able to do
so in the future. In addition, there can be no assurance that the
Company will be able to consummate any other business transaction to
increase its working capital and strengthen its financial condition.
(g) Inflation and Seasonality:
To date, inflation has not had a significant impact on the
Company's operations. The Company's revenues are affected by
seasonality with revenues anticipated to increase during holiday
seasons such as Thanksgiving, Christmas, Jewish New Year, Easter and
Passover.
16 of 17
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
Date: August 19, 1996 /s/ Maria Marfuggi
---------------------------------------------------
Chairman of the Board,
Chief Executive Officer and Secretary
(Principal Financial Officer and
Officer duly authorized to sign
on behalf of the Registrant)
17 of 17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
WILLIAM GREENBERG JR. DESSERTS AND CAFES, INC.
EXHIBIT 27 - FINANCIAL DATA SCHEDLUE
This schedule contains summary financial information extracted from the
condensed balance sheet of William Greenberg Jr. Desserts and Cafes, Inc. as at
June 30, 1996 and the related condensed statement of operations for the six
months ended June 30, 1996 on Form 10-QSB and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 555,130
<SECURITIES> 0
<RECEIVABLES> 165,186
<ALLOWANCES> (18,500)
<INVENTORY> 138,250
<CURRENT-ASSETS> 908,540
<PP&E> 1,895,288
<DEPRECIATION> (81,620)
<TOTAL-ASSETS> 3,958,000
<CURRENT-LIABILITIES> 371,812
<BONDS> 0
0
0
<COMMON> 2,560
<OTHER-SE> 3,543,866
<TOTAL-LIABILITY-AND-EQUITY> 3,958,000
<SALES> 1,772,566
<TOTAL-REVENUES> 1,772,566
<CGS> 1,278,327
<TOTAL-COSTS> 2,942,666
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,133,676)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,133,676)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,133,676)
<EPS-PRIMARY> (.42)
<EPS-DILUTED> (.42)
</TABLE>
